WASHINGTON, May 22: US Federal Reserve Chairman Ben Bernanke acknowledged the risks of the Fed’s low interest-rate policy on Wednesday but warned that tightening policy now could stall the US recovery.

Defending the Fed’s continuing stimulus, Bernanke told Congress that the US economic growth continues at a moderate pace with no threat of inflation or, as some analysts have worried recently, deflation.

On the other hand, he pointed to continued weaknesses in the economy, especially high joblessness and the drag on growth of federal spending cuts that justify the Fed’s aggressive bond-purchase policy aimed at keeping longer-term interest rates low.

Bernanke told Congress’s Joint Economic Committee that the Fed’s policy board, the Federal Open Market Committee, could decide to begin reducing the bond purchases in its next few meetings, but only if the FOMC has confidence that economic gains can be sustained.

“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke said in a statement.

The FOMC, he said, is well aware of the costs and risks to having held interest rates at an ultra-low 0-0.25 per cent since the end of 2008.

Conservative “inflation hawks,” including some members of the FOMC, have voiced worries that the Fed could have a very difficult time reeling in surplus liquidity in the economy and forestalling a burst of inflation if the Fed did not begin tightening policy now.—AFP